Are you ready to get started on a family budget? Are you overwhelmed? It can seem complicated at first – how do you categorize everything? What about expenses that fluctuate or aren’t monthly? The best thing to do is take a step back and look at some practical steps toward formulating your family budget.
Practical Tips To Get Started On A Family Budget:
Before you get started on a family budget, you need to make sure you have the right tools. Having printables is a great way to start. Having a hard copy to refer to is a great way to hold yourself and your family accountable. My blog friend Candi has more great budgeting tips as well, so be sure to check them out.
And simple things like a calculator, pencils with erasers, and access to your bank accounts and bills. You can’t know where you’re going until you see where you’ve been(no matter how scary it may be).
I admit, the thought of being on a budget makes me cringe. But with my oldest in college, and my youngest heading there in 2 years, it is imperative that our family creates and sticks to a budget.
And lastly, you need to get the entire family on board with the idea, or all the planning in the world isn’t going to do any good!
Estimates and Actuals, not Ideals
Remember that your budget is a tool, not a dream machine. Goals are important, but a family budget should first focus on the numbers you’re dealing with. That’s the basic first step. Once you have a grasp on that, you can begin a bit more idealizing, such as saving for vacations, desired items, etc.
And while vacations and desired items are wonderful, you need to be realistic. It’s not worth borrowing beyond your means just to say you had the most wonderful vacation ever(if you can pay for your vacation with cash or ahead of time, then feel free to splurge). Staycations can be just as wonderful, as are local daytrips.
Start with Your Net Income
First, figure out your net income for each month. This means your income minus taxes, insurance, 401K deductions, and so forth. If you are self-employed, subtract estimated taxes, insurance costs, retirement account savings, etc. At this point, you just need numbers.
A lot of times, your income is less that what you think. Be mindful of that. Keeping track of it will prevent any unwanted surprises.
Expenses – Keep Categories General
Next, figure out your monthly expenses. If they vary, figure out an average by looking at the last three to six months’ worth of expenses. For instance, if your electric bill was $150 last month, $140 the month before, and $175 the month before that, then you can estimate a monthly expense of around $155 for electricity. Alternatively, you could take the highest amount, $175, and go with that.
It’s a good idea to keep your categories as general as possible while still preserving clarity. Otherwise, you might get confused or overwhelmed by all the “hair splitting.” For example, instead of having “food, paper products, drug items, etc.” as categories, you can lump all those expenses under “groceries.” Items like “pet supplies” can be their own category, but you might want to include vet bills in that category. Here are some suggestions for categories:
* Charitable giving
* Payment off debt
* Home (mortgage, rent, property tax, insurance, repairs, etc.)
* Health Care
* Birthday and Christmas gifts
* Cushion (this is money set aside to offset surprises, mistakes, or unexpected expenditures)
* Personal (coffee, eating out, hair appointments, etc.)
One last thing you may want to consider is starting an emergency fund. A small amount budgeted now could save you tons of money in the future!
Stop and Look
At this point, stop and take a look at what you’ve got so far. Are your expenses greater than your income? It’s time to cut back significantly, or find another source of income (or both). If both adults work, maybe it’s time to look to see if it is worth it. The amount you are spending on gas, clothes, lunches, car wear & tear, etc., might be greater than the amount of money you are bringing in.
Not to mention that the emotional stress from your job might lead you to making unfit choices when it comes to family spending.
So far, you have two columns – income and estimated expenses. Now you need to add another column: actual expenses. Keep track of the real numbers each week over the next month and see how much/if they differ.
Once you have all these numbers, take time to see what is working, and what isn’t. Make adjustments until you have a healthy income to expenses ratio. Now you’re well on your way to a workable budget! It may be a little difficult at first, but being diligent about it can make for a healthier bank account.